Tapering in FX intervention appears to be already here
Tapering in the FX market appears to be already occurring. In March, the BoI purchased 2.0bn USD, following 4.9bn in February and 6.8bn in January. The shekel appreciated by 1% in March (against the basket), and has appreciated by 0.5% in the first week of April. Although the BoI has purchased 13.7bn YTD out of a program of 30bn, it is not limited to 30bn and can always exceed this framework. We note that Governor Yaron stated that late in the summer, the BoI will decide whether to continue government bond purchases, according to the state of the economy. With the economy already opening up rapidly, we could very well see tapering in FX intervention already taking place. We note that in February, non-residents increased their share of the government bond market to 10% from 9.2% in January and 5.2% in April 2020 (not including Makam). Israel’s rapid vaccination and economic recovery is shekel supportive.Tapering in the bond market likely in the fall The BoI also purchased 4.1bn in government bonds in March, maintaining the pace of previous months. 58.9bn out of 85bn allocated have already been purchased, and at this present pace, this program will be fully implemented by September. A continuation of this program will depend on the state of the economy. The big question is whether we will see tapering or a full stop in government bond purchases.